The Tax Sales Pitch

Just as car and furniture dealers advertise “No money down!” or “Zero payments until 2011!” states are known to hawk their tax policies as a means to lure businesses and new residents. New Hampshire’s pitch is “No sales tax!” and “No income tax!” and “No estate tax!” The first is a great lure for shoppers from Massachusetts and Maine, and the second and third can persuade small-business owners to move their ventures to the Granite State.

But just as savvy consumers know the “Zero payments until 2011″ pitch means they are likely paying a higher price for that sofa than at the furniture store down the street, savvy residents know there is no free lunch in New Hampshire. That state has high property tax rates, residents pay high fees to purchase and register cars, and pay fees when they buy or sell a house. But like furniture stores, states are in competition when it comes to luring residents and businesses, and Maine needs to be mindful of this in crafting a new tax policy.

On June 8, Mainers voted overwhelmingly to repeal a law that would have rolled state income tax rates back from 8.5 percent to 6.5 percent. The law was not an overall state tax reduction — just as New Hampshire’s lack of sales, income and estate taxes does not mean residents don’t pay for state services. But it was — or might have been — an effective marketing pitch.

The Tax Foundation reports New Hampshire has one of the lowest state tax burdens in the country. This does not take into account the local property tax, which in some towns is especially high. Furthermore, New Hampshire is relatively prosperous, and so has lower poverty program costs. The explanation for that invites a debate. Is there little poverty in New Hampshire because of the low state tax burden? Or is it because its well-educated, populous southern region is essentially a suburb of Greater Boston, where good jobs abound?

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The northern New England states — Maine, New Hampshire and Vermont — are a study in contrasts. New Hampshire boasts one of the nation’s lowest state tax burdens, yet Vermont has one of the highest. Vermont’s per capita state spending tops $8,000 compared to just over $4,700 in New Hampshire. Maine falls in between the two at $5,628. Yet New Hampshire’s corporate and business profits taxes are slightly higher than the national average.

When the new Legislature again begins the Sisyphean task of crafting a better state tax plan, it must do so within the context of its New England neighbors. This context ranges from New Hampshire’s broad-based state tax abstinence, to Massachusetts, which last year raised its sales tax from 5 percent to 6.25 percent, to Rhode Island, which recently lowered its income tax rate from 9.9 percent to 5.9 percent. And the sales pitch appeal of whatever plan Republicans can join Democrats in supporting also ought to be weighed.